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Monday, March 06, 2006

When Is Automated Not Automated? (Updated)

Last Friday, I submitted a transfer of funds from my bank account to my Prosper.com account and was informed it would take up to 5 business days for the transfer to be completed. Huh? The process is automated! In fact, Prosper uses the ACH system for transferring funds and ACH stands for Automated Clearing House. Last time I checked, computers didn't sleep or need time off, so why does this system only work during business days? Does anyone have the answer?

I can use my ATM card to make a purchase at a store on a Sunday, then go home and log on to my bank's website and see the transaction posted immediately. So why can't this happen with transfers using ACH?

Of course, the obvious answer is that ACH is a different network than the one debit cards use. But this simply begs the question of why Prosper choose to use the slower ACH system rather than the faster system debit cards use...

Does anyone have any insight into this?

Update: I contacted Mary Zerrenner of Electronic Payments Network, the only private ACH operator in this country, for answers to these questions. She says the settlements for ACH items happen at the Fed (federal reserve bank). The Fed does not process settlements on Saturdays, Sundays, or holidays. Thanks to Mary for looking into this. However, the underlying question still remains: Why are the computer programs at the Fed not running on weekends and holidays?

4 comments:

Anonymous said...

Probably because they can make money of that money you transfered. German banks do the same...

Oneil said...

yes they use that as a float -- citibank is notorious for doing that with overseas accounts. a friend of mine had his money of $10,000 held for over 20 days before it was released. Thats a months worth of interest

John said...

Hi,
I'm the CTO here at Prosper. Just wanted to respond to anonymous and Blood. Prosper does not profit from the float.

Actually, to do so would be illegal. Once the money hits the Prosper account (before it's loaned out), it sits in what's called an FBO (For Benefit Of) account. That means it's still your money and we have no claim to it. By law (and certainly by common sense) we therefore cannot profit from it. The only place we make money is in fees which are detailed here.

However, in all fairness I too have heard about this crummy practice elsewhere, so anonymous' concern is not unfounded.

Hope this helps.

-john

Shaun said...

Right. I assumed Blood was referring to the Fed using the float, not Prosper. Just to be clear, the money has not yet been withdrawn from my checking account, nor has it been placed in my Prosper account. So technically, no one has taken my money yet and therefore, no one is benefitting from float. But I did initiate the transfer 5 days ago and why it hasn't been completed yet is what I am complaining about. I am an electrical engineer by education and a database developer by occupation. I like to think I know a little bit about computers :-) so I just don't understand why automated ACH transfers cannot happen 24/7.

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